Deck 5: Inventories and Cost of Goods Sold

Question 1

Givens Corp. Givens Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the information for Givens Corp.
Calculate the gross profit.

A)$241,000
B)$275,000
C)$289,000
D)$425,000

Answer 1

C

Question 2

Givens Corp. Givens Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the information for Givens Corp.
Calculate net income.

A)$289,000
B)$141,000
C)$131,000
D)$116,000

Answer 2

C

Question 3

Chen's Department Store Chen's Department Store is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the account information for Chen's Department Store
Calculate Chen's cost of goods purchased

A)$ 84,000
B)$ 90,000
C)$ 103,000
D)$ 117,000

Answer 3

A

Question 4

Asago Co.sold merchandise to Health Co.on account,$18,000,terms 2/15,net 45.The cost of the merchandise sold is $15,500.Asago Co.issued a credit memo for $1,750 for merchandise returned that originally cost $1,400.The Health Co.paid the invoice within the discount period.What is amount of net sales from the above transactions?

A)$16,250
B)$14,100
C)$15,925
D)$13,818

Question 5

Chen's Department Store Chen's Department Store is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the account information for Chen's Department Store.
Determine Chen's gross profit.

A)$68,000
B)$72,000
C)$78,000
D)$85,000

Question 6

Using the following information,what is the amount of cost of goods sold?

A)$26,900
B)$20,530
C)$28,130
D)$30,210

Question 7

A company using the periodic inventory system has the following account balances: Merchandise Inventory at the beginning of the year,$3,600;Freight-In,$650;Purchases,$10,700;Purchases Returns and Allowances,$1,950;Purchases Discounts,$330.The cost of merchandise purchased is equal to

A)$12,670
B)$9,070
C)$8,420
D)$17,230

Question 8

Which one of the following accounts most likely would appear on the income statement of a merchandise company,but not on the income statement of a service company?

A)Cost of Goods Sold
B)Selling Expenses
C)Administrative Expenses
D)Income Tax Expense

Question 9

Items should be reported as part of the company's "inventory" if they are

A)Purchased from a creditor,although not paid for by year end
B)Held in anticipation of an increase in market value.
C)Determined to be part of cost of goods sold.
D)Sold during the period.

Question 10

Which of the following terms best describes "Cost of goods available for sale"?

A)Cost of goods available for sale is an expense account.
B)Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the period.
C)Cost of goods available for sale is subtracted from net sales to arrive at the gross margin
D)Cost of goods available for sale is allocated into cost of goods on hand and cost of goods sold at the end of the fiscal year

Question 11

Klein's Shoe Company uses a perpetual inventory system.The beginning balance in its inventory account is $1,500 and the ending balance is $1,000.Cost of goods sold is $6,500.What was the amount of inventory purchased during the year?

A)$ 500
B)$6,000
C)$7,000
D)$7,500

Question 12

Which one of the following ratios is a common analytical tool used by merchandise corporations,but not by service corporations?

A)Gross profit ratio
B)Earnings per share
C)Current ratio
D)Profit margin

Question 13

Givens Corp. Givens Corp.is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to information for Givens Corp.
Calculate the cost of goods sold for Givens Corp.

A)$275,000
B)$259,000
C)$241,000
D)$211,000

Question 14

A customer returned damaged goods for credit.Which of the seller's accounts decreases?

A)Purchase Returns
B)Accounts Receivable
C)Sales Returns
D)Sales Revenue

Question 15

Ending inventory is equal to the cost of items on hand plus

A)Merchandise in transit sold to customers FOB shipping point
B)Merchandise in transit sold to customers FOB destination
C)The cost of all inventory purchased during the period
D)Merchandise purchased in transit with terms FOB destination

Question 16

Which one of the following types of inventory accounts would be used by a wholesaler or retailer?

A)Raw materials inventory
B)Work in process inventory
C)Finished goods inventory
D)Merchandise inventory

Question 17

Chen's Department Store Chen's Department Store is a merchandising company that uses the periodic inventory system.Selected account balances are listed below:
Refer to the account information for Chen's Department Store.
Calculate Chen's net sales.

A)$162,000
B)$167,000
C)$170,000
D)$175,000

Question 18

What effects on a retail store's accounting equation occur when merchandise returned by customers is recorded?

A)Assets and stockholders' equity decrease.
B)Assets and stockholders' equity increase.
C)Assets decrease and liabilities increase.
D)Stockholders' equity decreases and liabilities increase.

Question 19

For what reason would retailers like The Gap select an accounting period that ends on or near the end of January?

A)The company originally started business operations on that date.
B)Business activity has reached a slow period that is suited to the preparation of its financial statements at the end of the year.
C)The company's CPAs are attempting to spread out the workload.
D)The Internal Revenue Service requires merchandise companies to select such a date for their fiscal year.

Question 20

The inventory account a manufacturer uses to record the cost of products completed and available for sale is called

A)Raw materials inventory
B)Work in process inventory
C)Finished goods inventory
D)Merchandise inventory

Question 21

Sunset,Inc.purchased merchandise from Rumble Music Company on June 5,2014.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10,n/30.The shipping terms were FOB shipping point.Sunset received the merchandise on June 10,2014.Sunset paid the amount due on June 13,2014. Sunset uses a perpetual inventory system.When will the cost of merchandise sold be recorded as an expense?

A)The date the merchandise was purchased.
B)The date the merchandise is sold.
C)The end of the accounting period
D)Cannot be determined without further information.

Question 22

Lalli Corp.sold merchandise to a customer on credit.The invoice amount was $1,000;the invoice date was June 10;credit terms were 1/10,n/30.Which one of the following statements is true?

A)The customer can take a $10 discount if the invoice is paid on June 30
B)The customer should pay $1,000 if the invoice is paid on July 9
C)The customer must pay a $10 penalty if payment is made after July 9.
D)The customer must pay $1,010 if payment is made after June 20.

Question 23

Cost of goods sold is equal to

A)the total amount of merchandise purchased during the year.
B)the cost of merchandise purchased plus transportation-in costs less ending inventory.
C)the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts minus ending inventory.
D)the cost of merchandise purchased plus transportation-in costs plus beginning inventory minus purchase returns and allowances and purchase discounts

Question 24

Which one of the following statements is false?

A)The inventory account is updated after every sale and after every merchandise purchase under the perpetual inventory system.
B)The inventory account is updated only at the end of the accounting period under the periodic inventory system.
C)A cost of goods sold account is updated after each sale of merchandise under the periodic inventory system.
D)A purchases account is used only under the periodic inventory system.

Question 25

The recognition of cost of goods sold expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the

A)matching principle
B)full disclosure principle
C)revenue realization principle
D)historical cost principle

Question 26

The following is from Silverstein Inc.'s 2014 income statement. How much will Silverstein report as its cost of goods sold in its 2014 income statement?

A)$179,900
B)$182,300
C)$186,900
D)$190,700

Question 27

In order to determine inventory for its balance sheet,it is best for a company to count the inventory at the end of its accounting period for

A)The periodic inventory system
B)The perpetual inventory system
C)Both the periodic and perpetual inventory systems
D)Neither the periodic nor perpetual inventory systems

Question 28

Which one of the following is correct?

A)Inventory losses can be identified and controlled better under the perpetual system.
B)Inventory can only be sold at the end of an accounting period under the periodic system.
C)There is no difference in cost to implement a perpetual as compared to a periodic system.
D)The perpetual system eliminates the need for an annual inventory count

Question 29

How are purchase discounts and purchase returns recorded by a company using the periodic inventory system?

A)As a direct reduction to the Purchases account.
B)In contra accounts to the Purchases account.
C)As operating expenses.
D)As miscellaneous expenses.

Question 30

The following is from Silverstein Inc.'s 2014 income statement. How much will Silverstein report as cost of goods purchased in its 2014 income statement?

A)$184,600
B)$193,000
C)$201,400
D)$211,100

Question 31

Grout,Inc.offers terms of 2/10,n/30 to credit customers.Tile Mart Corp.purchased 100 tile cutters with a list price of $20 each on March 5,2014,on account. If Tile Mart Corp.pays the amount of the invoice for its purchase on March 14,2014,how much cash will Grout receive from Tile Mart Corp.?

A)$1,764
B)$1,800
C)$1,960
D)$2,000

Question 32

The cost of goods sold is

A)Purchases less beginning inventory plus ending inventory
B)Reported on the balance sheet in the inventory account
C)Goods available for sale less ending inventory
D)Equal to the amount of inventory on hand at the end of the accounting period

Question 33

Feinstein Company buys designer clothing to sell in its retail stores.Since much of the merchandise comes from Dallas and Europe.Feinstein Company must pay freight charges to get the merchandise shipped in.Which statement is true?

A)Transportation-in,paid by Feinstein Company,is added to the inventory account under the periodic system.
B)Transportation-in,paid by Feinstein Company,is subtracted from purchases under the periodic system.
C)Freight charges are only paid by a buyer in a periodic system.
D)Transportation-in is added to net purchases to determine cost of goods purchased in a periodic system.

Question 34

When an inventory system updates the Inventory account at the time of each sale,this is known as:

A)a periodic system
B)a contra-purchase system
C)a perpetual system
D)an accrual system

Question 35

Sales Discounts is classified as what type of account?

A)an expense
B)a revenue
C)a contra-asset
D)a contra-revenue

Question 36

Blenham,Inc.sells merchandise on credit.If a customer pays its balance due after the discount period has passed,what is the effect of the payment on Blenham's accounting equation?

A)Assets and stockholders' equity decrease
B)Assets and stockholders' equity increase
C)Assets decrease and liabilities increase
D)No net effect

Question 37

Blenham,Inc.sells merchandise on credit.If a customer pays its balance due within the discount period,what is the effect of the payment on Blenham's accounting equation?

A)Assets and stockholders' equity decrease
B)Assets and stockholders' equity increase
C)Assets decrease and liabilities increase
D)Stockholders' equity decreases and liabilities increase

Question 38

Texas Inc.sold merchandise to Flange Corp.on December 28,2013,with shipping terms of FOB destination.Flange Corp.received the merchandise on January 3,2014.Which one of the following statements is true?

A)Texas should record sales revenue on December 28,2013.
B)Flange Corp.should pay the transportation costs.
C)Flange Corp.should include the merchandise in its inventory at December 31,2013.
D)Flange Corp.should record a liability for the purchase on January 3,2014.

Question 39

In a periodic inventory system,the cost of purchases is recognized as

A)An integral part of the calculation of cost of goods sold
B)The only part of the calculation of cost of goods sold
C)An increase in the inventory account
D)An increase in an asset account

Question 40

Grout,Inc.offers terms of 2/10,n/30 to credit customers.Tile Mart Corp.purchased 100 tile cutters with a list price of $20 each on March 5,2014,on account. Tile Mart Corp.paid the invoice on March 31,2014.How much sales discount will Grout recognize?

A)$ -0-
B)$ 40
C)$ 200
D)$ 236

Question 41

The Ramien Store held inventory items at the end of 2014.Which items should Ramien include as part of its total inventory cost?

A)Freight incurred in shipping goods to customers.
B)Annual income taxes paid for operations.
C)Cost of storing inventory before it is sold.
D)Cost of salaries of clerks that sell the inventory items.

Question 42

All of the following statements regarding the gross profit ratio are true except:

A)The gross profit ratio alone is sufficient to determine a company's profitability.
B)Managers,investors,and creditors use the gross profit ratio to measure one aspect of profitability.
C)The gross profit ratio explains how many cents on every dollar are available to cover expenses other than cost of goods sold and to earn a profit.
D)If a company's net sales were $200,000 and cost of goods sold were $120,000,its gross profit ratio would be 40%.

Question 43

At the year end inventory count,if goods in transit are shipped FOB shipping point,they should be included in the inventory count of

A)The seller
B)The buyer
C)Both the seller and the buyer
D)Neither the seller no the buyer

Question 44

Which one of the following statements is true?

A)The flow of inventory costs should match the physical flow of the merchandise.
B)Accounting standards require that merchandise costs be specifically traced to units left in inventory and to units that have been sold
C)Accountants have developed methods which make assumptions concerning how costs should be assigned to inventory and cost of goods sold.
D)Alternative inventory cost flow assumptions have the same effect on the amount of net income reported.

Question 45

At the year end inventory count,if goods in transit are shipped FOB destination,they should be included in the inventory count of

A)The seller
B)The buyer
C)Neither the buyer nor the seller

Question 46

Herndon Corp.purchased merchandise on account from Likert Corp.on November 18,2014.On November 21,2014,Herndon returned damaged merchandise to Likert and was granted an adjustment on its account.Herndon uses the periodic inventory system.What effect does the merchandise return have on Herndon's accounting equation?

A)Assets and stockholders' equity decrease.
B)Assets and liabilities decrease.
C)Liabilities decrease and stockholders' equity increases.
D)Liabilities and stockholders' equity decrease.

Question 47

Which method assigns the cost of the most recent items purchased to cost of goods sold?

A)Specific identification
B)Weighted average cost
C)FIFO
D)LIFO

Question 48

In order to evaluate a company's gross profit ratio,

A)the ratio should be compared with forecasted financial statements.
B)the ratio should be compared with those of prior years.
C)the ratio should be compared with other companies in the same industry.
D)the ratio should be compared with those of both prior years and competitors.

Question 49

Many companies assign only the net invoice price for merchandise to inventory and cost of goods sold.All other costs,including transportation and other costs of bringing merchandise to the place of business,are charged to expense of the period in which they are incurred.Which accounting principle or concept is applied in this example?

A)Historical cost
B)Matching
C)Cost/Benefit
D)Conservatism

Question 50

Sunset,Inc.purchased merchandise from Rumble Music Company on June 5,2014.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10,n/30.The shipping terms were FOB shipping point.Sunset received the merchandise on June 10,2014.Sunset paid the amount due on June 13,2014. Sunset uses the periodic inventory system.What effect does recording the purchase of merchandise on June 5,2014 have on Sunset's accounting equation?

A)Assets and liabilities increase.
B)Liabilities increase and stockholders' equity decreases.
C)Assets and stockholders' equity increase.
D)Liabilities and stockholders' equity decrease.

Question 51

Wendt,Inc.counted its ending inventory as $178,000 at year-end,January 31,2014.Upon review of the records,it was noted that the following items were in transit during the count: Determine the correct inventory balance at January 31.

A)$178,000
B)$177,000
C)$174,000
D)$172,000

Question 52

Transportation-in is

A)an operating expense
B)part of purchases
C)added to transportation-out as part of the calculation of cost of goods sold
D)part of cost of goods purchased

Question 53

The ending inventory balance represents

A)Expired costs and is reported on the balance sheet as an asset.
B)The cost of goods sold during the current period and is reported on the balance sheet as an asset.
C)Expired costs and is reported on the income statement as an expense
D)Unexpired costs and is reported on the balance sheet as an asset.

Question 54

Sunset Band,Inc.purchased merchandise from Rumble Music Company on June 5,2014.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10,n/30.The shipping terms were FOB shipping point.Sunset received the merchandise on June 10,2014.Sunset paid the amount due on June 13,2014. When did title to the merchandise transfer from Rumble Music Company to Sunset?

A)June 5,2014
B)June 10,2014
C)June 13,2014
D)Cannot be determined from the information provided

Question 55

Which method assigns the cost of the most recent items purchased to ending inventory?

A)Specific identification
B)Weighted average cost
C)FIFO
D)LIFO

Question 56

Which one of the following is not a contra account?

A)Purchase Returns and Allowances
B)Accumulated Depreciation
C)Transportation-in
D)Sales Discounts

Question 57

Sunset Band,Inc.purchased merchandise from Rumble Music Company on June 5,2014.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10,n/30.The shipping terms were FOB shipping point.Sunset received the merchandise on June 10,2014.Sunset paid the amount due on June 13,2014. Who is responsible for payment of the transportation costs on the merchandise sold by Rumble Music to Sunset?

A)Rumble Music Company
B)Sunset,Inc.
C)Split equally between the two companies.
D)Cannot be determined from the information provided.

Question 58

Sunset,Inc.purchased merchandise from Rumble Music Company on June 5,2014.The goods were shipped the same day.The merchandise's selling price was $15,000.The credit terms were 1/10,n/30.The shipping terms were FOB shipping point.Sunset received the merchandise on June 10,2014.Sunset paid the amount due on June 13,2014. If Sunset uses the periodic inventory system,the effect of recording the payment on June 13,2014,will include

A)A decrease to Purchases for $15,000.
B)An increase to Inventory for $14,850.
C)A decrease to Cash for $15,000.
D)A decrease to Accounts Payable for $15,000.

Question 59

Which method assigns the same cost to all units whether sold or left in ending inventory?

A)Specific identification
B)Weighted average cost
C)FIFO
D)LIFO

Question 60

Cost of goods sold represents

A)Expired costs during a period and is reported on the income statement.
B)Unexpired costs and is reported on the balance sheet as an asset.
C)The cost of goods that will be purchased during the next operating cycle and is reported on the balance sheet as an asset.
D)Expired costs and is reported on the balance sheet as an expense.

Question 61

Which method might allow a company to make significant inventory purchases at year end for the purpose of manipulating income?

A)FIFO
B)LIFO
C)Specific Identification
D)Weighted Average Cost

Question 62

If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO,assuming a tax rate of 40%,how much tax savings resulted from using LIFO?

A)There would be no tax savings.
B)$ 800
C)$ 1,200
D)$ 2,000

Question 63

For which type of inventory would a company most likely use the specific identification method?

A)Barbie dolls
B)Cartons of milk
C)Custom designed diamond rings
D)Gasoline in storage tanks at a gasoline station

Question 64

Eversoll Inc.uses the periodic inventory system. How many units did Eversoll,Inc.sell during June?

A)50
B)90
C)100
D)150

Question 65

Which inventory costing method results in the lowest income tax expense during a period of decreasing prices?

A)FIFO
B)LIFO
C)Specific Identification
D)Weighted Average Cost

Question 66

Summer,Inc.has been in business for 20 years.During that time the company has consistently used the LIFO inventory costing method.Because of inflation,prices for merchandise have increased consistently over the 20 years.The company has maintained the same inventory quantities over the 20-year period.Which one of the following statements is true?

A)Summer,Inc.'s total net income for the past 20 years is greater than it would have reported using another inventory method
B)Summer,Inc.will have paid more income taxes over the past 20 years than it would have if it had used the FIFO method.
C)Summer will have to continue using the LIFO method indefinitely because of generally accepted accounting principles and federal income tax rules.
D)The ending inventory figure reported on the balance sheet may be significantly lower than its current value.

Question 67

Which inventory costing method results in the highest inventory balance during a period of rising prices?

A)Weighted average cost
B)FIFO
C)LIFO
D)Both FIFO and LIFO result in the same inventory balance

Question 68

Which method of inventory costing is not acceptable for financial accounting purposes?

A)Specific Identification
B)FIFO
C)LIFO
D)Replacement Cost

Question 69

Eversoll Inc.uses the periodic inventory system. If the June 30th inventory included 45 units from the June 5th purchase and 45 units from the June 14th purchase,Eversoll's cost of goods sold for June under the specific identification method would be

A)$2,263.00
B)$2.373.00
C)$2,945.00
D)$3,626.50

Question 70

Eversoll Inc.uses the periodic inventory system. If Eversoll uses the FIFO inventory method,the amount assigned to the June 30 inventory would be

A)$1,354.00
B)$1,366.50
C)$1,590.42
D)$1,594.00

Question 71

During a period of increasing cost prices,which inventory costing method will yield the lowest cost of goods sold?

A)Any method in which the company uses a periodic inventory system
B)FIFO
C)LIFO
D)Weighted Average Cost

Question 72

Quan uses a periodic inventory system.At the end of April,Quan had 20 units on hand. If Quan,Inc.uses FIFO inventory costing,how much is cost of goods sold for April?

A)$230
B)$232
C)$240
D)$250

Question 73

Federal income tax rules allow businesses to use different inventory costing methods for tax reporting and financial reporting with one exception.Which of the following situations is not allowed by federal income tax rules? Inventory Method Inventory Method
For Tax Reporting for Financial Reporting

A)LIFO LIFO
B)LIFO FIFO
C)Weighted Average FIFO
D)FIFO LIFO

Question 74

Quan uses a periodic inventory system.At the end of April,Quan had 20 units on hand. If Quan,Inc.uses the weighted average cost inventory method,how much is cost of goods sold for April?

A)$230
B)$232
C)$240
D)$250

Question 75

Which one of the following statements regarding changing inventory methods is true?

A)A change in inventory methods can be justified if the change is made to better match profits with revenue.
B)Changing inventory methods affects consistency.
C)One place that the reader of an annual report would be able to identify that a company changed inventory methods is the statement of stockholders' equity.
D)Tax advantages are valid justification for changing inventory methods.

Question 76

Eversoll Inc.uses the periodic inventory system. If Eversoll uses the weighted average cost inventory method,the amount assigned to the June 30th inventory would be

A)$1,359.90
B)$1,486.50
C)$1,549.00
D)$1,591.50

Question 77

Ling Corp.started business at the beginning of 2013.Ling selected the FIFO method for its inventory.In order to maximize its profits for 2013 under this method,prices must be

A)Increasing
B)Decreasing
C)Stable
D)Fluctuating up and down at the same amount consistently over the year

Question 78

Eversoll Inc.uses the periodic inventory system. If Eversoll uses the LIFO inventory method,the cost of goods sold for June would be

A)$1,354.00
B)$2,200.00
C)$2,272.50
D)$2,296.08

Question 79

A major advantage of the weighted average method of inventory costing is that

A)Cost flows correspond with the physical flow of merchandise
B)It is relatively easy to apply
C)It matches current costs with revenues
D)Recent costs are assigned to the ending inventory balance

Question 80

Quan uses a periodic inventory system.At the end of April,Quan had 20 units on hand. If Quan uses the LIFO inventory method,how much is inventory on the balance sheet as of April 30?

A)$40
B)$50
C)$58
D)$60